HIGH INCOME IS NOT WEALTH

Last week the finance ministry released a report on Uganda’s progress on the Millennium Development Goals (MDGs).

On the whole the progress in areas like increased primary school enrollment, access to clean water, gender equality and women’s empowerment and reduction in child mortality compared to ten years ago.

Among the findings of that report was the fact that proportion of Ugandans living on less than a dollar a day has plunged to 23% from 36% over the last five years. What this means is that as a country we have reached the target rate of poverty set out by the UN in 2000. The target date for achievement of these was 2015.

As I have argued before I think the dollar a day measure of poverty is cow manure. As far as I am concerned one-dollar-day is an easy target and personally do not doubt that we have attained these target. I think it’s a scandal that we can even have people living on less than a dollar a day or even $10 for that mater.

It is not hard to see why we struggle to meet this basic of targets.

During a conference last week the National Development Plan was criticized for its lack of clearly defined strategy for transforming the country’s economy – put bluntly our planners are involved in wishful thinking.

Also there seems to be a lack of understanding of what will make for sustainable poverty eradication. We are focusing on income from jobs or trade rather than on encouraging building income generating assets. The difference between the two is worlds a part.

Of course for political purposes raising incomes is the easier target – and hence the UN’s one dollar a day standard.

Back to first principles there are four levels of financial health. At the bottom rung is poverty, at this level one can not provide the basic necessities of life on their own income and is forced to rely on handouts to bridge their financial deficits. The next level is one of financial freedom where a regular income ensures that one can provide for self, in this category is most salaried workers, most of whom are a salary away from poverty.

Financial security, is where an individual may or may not have a regular income but his income from his accumulated assets adequately provides for his daily expenses. It is at this level that one can honestly talk of pulling out of poverty.

To be rich is an extension of being financial secure, but this time ones assets are throwing off more income than you or your family can consume.

Seen in this light you want to ask yourself whether you are out of poverty or not. And understandably this standard would be hard to attain, hence its unpopularity politically.

Let us assume as a country we aim at financial freedom for all by 2050, what it would take to attain that.

It goes without saying we have to sustain the current level of macro economic stability, especially keeping inflation rates down.

In addition we have to significantly lower the cost of doing business.

Improve our transport networks – getting the train up and running for goodness sake, eliminate power shortages, improve health services, restructure our education to provide market relevant man power and eliminate onerous licensing processes among other things.

The idea would be that not only would businessmen have a better chance of making successes of their enterprises – selling more and employing more, but the cost savings would be passed on to the consumer who would then have wider options for his money.

We would also restructure our financial sector creating incentives for more savings, liberalise the pension sector and support venture capitalists whose job it is to back start ups.

And eventually as a nation we need to be more committed to promoting entrepreneurship and financial literacy.

To take our businesses to the next level they need to be more structured and therefore our businessmen need education and mentoring. The days of hit and miss businessmen are gone as the economy becomes more formalized.

At the very personal level widespread financial literacy – the ability for instance to distinguish between income and wealth, is critical. For a long time now our salary and other income earners have been blundering through life, thinking that because they have a regular paycheck they have arrived only to be reduced to destitution at retirement.

Lets raise our sights beyond a dollar a day after all achieving arbitrary and meaningless benchmarks is not what we are here for.

LET’S DO A PILGRIMAGE TO ISRAEL

I have thought for quite a while now that Uganda’s economic planners should make a pilgrimage to Singapore and Dubai. I haven’t been to Singapore but have read the founding father Lee Kuan Yew’s book “From Third World to First: The Singapore story” and believe it should serve as the prototype for development. I have been to Dubai and what they have been able to conjure out of the desert in terms of infrastructure and a general corporate dynamic some say is unmatched except maybe by Hong Kong, is just a wonder. 

The harnessing of the private sector while itself becoming a super efficient state is something we badly need to learn. And now I add Israel to the list of must visit countries for the men and women of the Planning ministry. 

 “Start-Up Nation: The story of Israel’s Economic Miracle” is a book that tries to deconstruct the economic success of the Jewish state. To appreciate the miracle of Israel understand that this is a country, were it a square would not be as wide as the distance from Kampala to Masaka. Mostly desert, it was described by Mark Twain as a “desolate country … a silent mournful expanse.” 

It has a population of seven million people most of whom are at least second generation immigrants. Since independence in 1948 Israel has lifted itself from a besieged backwater to a high tech hub, while growing its economy fifty fold and this despite fighting three wars and being in a state of perpetual tension, “Totally unmatched in the economic history of the world,” according to Israeli political scientist Gidi Grinstein. 

 At the bottom of small Middle Eastern country’s success is the entrepreneurial spirit of its people. It has more start up companies per capita than any place else in the world. The amount of venture capital investment per person – another indicator of entrepreneurship, is nearly thrice that of the US and more than thirty times that of the European Union. Innovation that often comes with start ups, is the only proven way of economies to stay ahead and provide for the increasing demands of not only a growing population but of rising demands that come with a higher standard of living. This boom in entrepreneurial activity flies in the face of the perception of Israel, as not only being at the heart of an unstable region but that Israel’s very existence is not assured by its belligerent neighbours.

 A complicated subject. The roots of this national spirit of entrepreneurship and innovation, authors Dan Senor and Saul Singer find in some rather unlikely places. The fact that Israel – like the US, is a nation of immigrants who by definition are risk takers is key and has some useful lessons for immigration policy makers. When added to the crucial role played the Israel Defence Forces (IDF) in fostering an informal approach to authority, a unique attitude to failure and serves as a demanding culling selection process of the country’s best talent, the country has come as close as one can get to formalizing the process of entrepreneurship. 

 The development of the military and avionics industry – an unintended consequence of an arms embargo, nurtured a cadre of high tech engineers and laid the foundation for the huge concentration of the high tech industries in Israel today. A booming venture capital industry, initially promoted by the government, means local entrepreneurs have access not only to funds but to the mentorship needed to grow business and make them competitive on the international scene. Everything was not planned at the inception of the Jewish state by wise man Ben Guiron, but forced into a corner by real existential questions, Israel like few other countries in the world has literary taken the lemon of its circumstance and turned it into lemon juice. Which makes me wonder, what would have happened if the early Zionists had taken up Britain’s offer to settling in Karamoja?